• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
Free ACCA & CIMA online courses from OpenTuition

Free ACCA & CIMA online courses from OpenTuition

Free Notes, Lectures, Tests and Forums for ACCA and CIMA exams

  • ACCA
  • CIMA
  • FIA
  • OBU
  • Books
  • Forums
  • Search
  • Register
  • Login
  • ACCA Forums
  • Ask ACCA Tutor
  • CIMA Forums
  • Ask CIMA Tutor
  • FIA
  • OBU
  • Buy/Sell Books
  • All Forums
  • Latest Topics

Congratulations to Jamil from Pakistan and Jeeva from Malaysia - Global Prize winners!
see all ACCA December 2022 Genius Hunt Competition winners >>

Specially for OpenTuition students: 20% off BPP Books for ACCA & CIMA exams – Get your BPP Discount Code >>

Currency Futures

Forums › Ask CIMA Tutor Forums › Ask CIMA P3 Tutor Forums › Currency Futures

  • This topic has 4 replies, 2 voices, and was last updated 3 years ago by Ken Garrett.
Viewing 5 posts - 1 through 5 (of 5 total)
  • Author
    Posts
  • March 10, 2019 at 4:56 pm #508936
    dsodha
    Member
    • Topics: 18
    • Replies: 12
    • ☆

    Why is it that the exchange rate at which the contract is open, is considered the lock-in rate? Please explain how is that the case.

    March 10, 2019 at 5:46 pm #508952
    Ken Garrett
    Keymaster
    • Topics: 10
    • Replies: 10194
    • ☆☆☆☆☆

    That’s the point of them.

    They are priced by the futures market near the current exchange rate and their price stays close to that rate.

    So if the exchange rate today were $US 1.3 = £1 then futures contracts would be priced near that. You could buy them for $1.3.

    If you were going to receive US$ later, but the rate had by then moved to $1.4 you would be
    out of pocket. However, the price of the futures would have moved to $1.4 and you could make a compensating profit on the futures (Sell at $1.4, bought at $1.3).

    March 10, 2019 at 6:21 pm #508959
    dsodha
    Member
    • Topics: 18
    • Replies: 12
    • ☆

    Thank you. It’s a bit clearer to me now.

    But refering in the example above, is $1.3 the lock in rate even if the hedge is not a perfect size one.

    March 10, 2019 at 8:05 pm #508965
    dsodha
    Member
    • Topics: 18
    • Replies: 12
    • ☆

    Is it correct when I say that we can easily use the lock-in rate $1.3 to calculate the cost or receipt in pound with the hedge, but only when it is a perfect hedge

    March 11, 2019 at 11:19 am #509013
    Ken Garrett
    Keymaster
    • Topics: 10
    • Replies: 10194
    • ☆☆☆☆☆

    It is the best you can do if no other information is given in the question. Basis risk remains (ie the risk that the futures price does not move perfectly with the exchange rate).

  • Author
    Posts
Viewing 5 posts - 1 through 5 (of 5 total)
  • You must be logged in to reply to this topic.
Log In

Primary Sidebar

ACCA News:

 

ACCA My Exam Performance for non-variant Applied Skills exams is available NOW

NEW! Download the ACCA Pass Guide

FREE Verifiable CPD for ACCA Members

ACCA mock exams and debrief videos

ACCA Options:  “Read the Mind of the Marker” articles

Subscribe to ACCA’s Student Accountant Direct

Donate

If you have benefited from OpenTuition please donate.

ACCA CBE 2023 Exams

Instant Poll * How was your exam, and what was the result?

BT CBE exam was.. | MA CBE exam was..
FA CBE exam was.. | LW CBE exam was..

Specially for OpenTuition students

20% off BPP Books

Get BPP Discount Code

Latest comments

  • SwissCheese on Target costing – Lecture 1 – ACCA Performance Management (PM)
  • Akhrorov on Time Series Analysis – ACCA Management Accounting (MA)
  • Sokkit on Activity Based Costing part 1 – ACCA Performance Management (PM)
  • Sokkit on Activity Based Costing part 1 – ACCA Performance Management (PM)
  • daliuske on Financial management objectives – ACCA Financial Management (FM)

Copyright © 2023 · Support · Contact · Advertising · OpenLicense · About · Sitemap · Comments · Log in


We use cookies to show you relevant advertising, find out more: Privacy Policy · Cookie Policy